Erdogan sacks Turkish central bank governor

Erdogan sacks Turkish central bank governor

Recep Tayyip Erdogan has sacked Turkey’s central bank governor, raising fresh concerns about the independence of the rate-setter at a fragile time for the Turkish economy.

Mr Erdogan used a presidential decree, published in the early hours of Saturday, to remove Murat Cetinkaya from his job a year before the end of his four-year term.

He will be replaced by Murat Uysal, an economist who spent much of his career at the state-owned Halkbank before becoming one of the central bank’s deputy governors.

The move by the Turkish president, who had recently complained that high interest rates were “hurting” the country, was announced three weeks before a monetary policy meeting, when the bank is expected to begin a cycle of easing.

Turkey is battling to overcome an economic downturn that followed last year’s currency crisis, which wiped 30 per cent off the value of the lira.

Mr Cetinkaya’s sacking could unnerve international investors who were already braced for turbulence amid reports that Turkey will take delivery of a controversial Russian air defence system next week, a move that could trigger US sanctions.

Saturday’s sacking prompted warnings about the erosion of the bank’s independence under Mr Erdogan, a critic of high interest rates who has tightened his grip on Turkish institutions since taking to taking the helm of an all-powerful executive presidency in June 2018.

Durmus Yilmaz, a former central bank governor and a senior member of the opposition IYI party, questioned the legality of the sacking, arguing that it was at odds with “an integral aspect of central bank independence”.

Paul McNamara, a fund manager at asset manager GAM, described the sacking as “an extraordinarily stupid thing to do.” He added: “I think the lira’s going to do very badly on Monday.”

Many investors had clamoured for the removal of Mr Cetinkaya after the central bank pursued an erratic approach last year. The bank at first refused to raise interest rates as the lira plummeted to a series of historic lows last summer, as a row with Donald Trump over a jailed evangelical pastor ignited investor concerns about the health of the Turkish economy. But it went on to raise rates to 24 per cent in September.

The bank won praise for keeping rates on hold as the economy has slumped, enabling the country’s soaring inflation to gradually come down from a peak of 25 per cent in October to 15.7 per cent last month — although investors were alarmed by its unorthodox use of currency swaps, which disguised a plunge in net foreign reserves.

Markets were already expecting a small rate cut at the next meeting of the bank’s monetary policy committee on July 25. Some now think that Mr Erdogan will seek to impose a much sharper cut.

Speaking at a press conference in June, the Turkish president said that high rates were “hurting us” and restated his unorthodox belief that they were the cause of high inflation.

“In spite of the fact that high inflation is here as proof of my opinion, unfortunately, some people around me also defend the opposite opinion,” he said. “But I believe, we will solve this also through elaborations and discussions.”

He promised that a “decisive” solution would soon be introduced.

Mr McNamara said that the removal of Mr Cetinkaya would be seen as a signal that the Turkish president was no longer willing to tolerate the slow growth that analysts see as essential to rebalancing the Turkish economy.

“There’s going to be the assumption that they’re going to abandon the policy of keeping interest rates high and not pushing loan growth,” he said.

“If they’re going to try and short circuit the recession by trying to pile more loans into a weak economy, that’s the scenario where things can start to go quite seriously wrong in Turkey.”

Tim Ash, an emerging markets strategist at BlueBay Asset Management, described the changes at the bank as “idiotic.” Writing on Twitter, he said that the central bank’s credibility was already “shot to hell.” He added: “This move just takes it back further.”

Mr Uysal, the new governor, is a former banker. He studied economics at Istanbul University before pursuing a masters in banking and insurance at the city’s Marmara University, where he specialised in inflation targeting.

Before joining the central bank as deputy governor in 2016, he held senior positions at the state-owned lender Halkbank and Halk Asset Management.

The central bank said that Mr Uysal, would “continue to independently implement monetary policy instruments focused on achieving and maintaining its primary objective of price stability in line with the duties and responsibilities granted to him by law.”

Mr McNamara said that the new governor would have to “come out with something really pretty punchy” in the coming days in order to reassure the markets

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